The Wall Street Journal today dutifully reported the Commerce Department’s seasonally adjusted data on Durable Goods orders in July, proclaiming:
U.S. Durable-Goods Orders Rebounded in July, Jumping 4.4%
However, the actual, not seasonally adjusted data tells another story. It’s easy to actual data to tell if the momentum of the business is gaining or losing ground. Just compare the year to year change for the current month with immediate past months.
The actual data showed a year to year decline of -6.4% and a month to month decline of -13.7%.
That doesn’t tell us much on a standalone basis. We need to compare that to past data to see the momentum of the business. The year to year decline of -6.4% in July was indeed a hair better than June’s drop of -6.7%. However the July drop was larger than each of the 10 months prior to June. That’s a pretty weak basis for claiming that July had an increase of 4.3%. It’s easy enough to see on a chart however.
We also see that the July level was 1.7% below the July 2007 peak, while the June level was just 1.1% below the June 2007 peak.
The June-July month to month drop of -13.7% means little on its own. A month to month decline of some magnitude is normal for July. The July month to month decline was a hair better than in July of 2015, when the drop was -14.1%. Is that a material improvement? Not compared with an 8.4% July gain in 2014. That was an outlier, but the average change in July since the recovery began in 2009 has been -10.5%. The current month was materially worse than average, 30% worse to be precise.
This data is for nominal dollar value. It does not adjust for inflation. Using the PPI for durable goods as the deflator, the big picture on a unit volume basis is a whole lot worse than the nominal data shows. Meanwhile stock prices have decoupled, particularly since 2013.
In terms of unit volume of orders, current levels are well below 2007 levels. Order volume has been in a downtrend for 16 years as the US persistently loses durable manufacturing sales and production to the rest of the world. There has been no secular recovery, and the cyclical recovery ended in 2013.